What is a tronc scheme?
Tronc schemes, sometimes referred to as troncs or tronc arrangements, are designed to distribute service charges, tips and gratuities to employees within the hospitality and leisure sector. These schemes offer substantial benefits, including long-standing tax reliefs and exemptions, which can significantly enhance employee take-home pay without additional costs to your business.
How does tronc work?
Operated by an independent ‘Troncmaster’, this system ensures fair and transparent allocation based on predetermined rules set by the business and its employees. With a tronc scheme, you ensure HMRC receives the correct amount of tax on the growing number of discretionary payments made via payment cards. Businesses and employees benefit from a tax position similar to that of cash tips – income tax is payable by the employee, with no National Insurance Contributions (NICs) required.
However, tronc schemes can be complex, and regulations frequently change. Mismanagement of cash tips, converting card payments to cash, or inadvertently creating contractual arrangements can expose your business to unnecessary risks.
How to set up a tronc scheme – how Moore Kingston Smith can help
Our team adheres to ethical principles to ensure your arrangements comply fully with HMRC’s rules and guidance. With our extensive experience, we can help streamline your administration and meet your legal obligations, including:
- designing, implementing, and managing tronc schemes;
- taxation of payments to employees at source;
- NIC exemption compliance;
- considerations around the National Minimum Wage and National Living Wage;
- employee incentives and rewards;
- recruitment, retention, and contractual matters related to tips and troncs;
- handling employment tribunal claims involving tips or troncs;
- managing HMRC NIC demands.
Troncmaster services
Moore Kingston Smith, through its subsidiary WMT Troncmaster Services Ltd, offers expert outsourced Troncmaster services. Our tronc schemes are designed and implemented to meet HMRC’s exacting standards, and we encourage all clients to follow the principles of an ethical tronc.
Once your scheme is up and running, our dedicated Troncmaster will manage it on your behalf, ensuring compliance and delivering real benefits to both your business and your staff.
What is a Troncmaster?
A Troncmaster is designated to oversee the fair distribution of tips, gratuities, and service charges collected from customers to the staff. Unlike a traditional payroll manager, the troncmaster operates independently from the employer, ensuring impartiality and adherence to the agreed-upon distribution rules set by the staff.
Why choose a Troncmaster?
You need someone trustworthy, reliable, and impartial who understands the complexities of tronc management and the unique needs of your business. Choosing WMT Troncmaster Services alleviates your team of the administrative burden, ensuring that your scheme:
- Is run fairly and impartially, without bias from personal relationships or interests.
- Remains fully compliant with HMRC regulations.
- Meets all documentation and record-keeping requirements.
- Reduces the risk of tax, NICs, interest, or penalty demands from HMRC.
As your Troncmaster, we handle all communications related to the tronc with both your staff and payroll provider, ensuring accurate and timely payments. Your team will always know how much they have received from the tronc scheme, with no deductions taken by us from the tronc fund.
With WMT Troncmaster Services Ltd, you’ll benefit from a scalable solution that manages your tronc compliance and administration, allowing you and your team to focus on delivering exceptional service to your customers.
Tipping and service charges: good practice principles
Ensuring a transparent and fair distribution of tips, gratuities and service charges not only boosts staff morale and performance but also helps alleviate customer concerns about how these payments are shared.
UK hospitality businesses that accept tips, gratuities and service charges face a constant challenge – meeting the expectations of customers, employees, investors and authorities with regard to the fair and ethical distribution of these payments.
The methods of payment management and allocation of gratuities can vary significantly between businesses, so it’s crucial to adopt a consistent approach that ensures legality, fairness, transparency and ethics.
With our expert guidance, you can be assured your approach to distributing these funds complies with legal standards while also maximising any available tax-saving opportunities.
New tronc legislation – obligations for employers
On 1 October 2024, new regulations came into effect regarding the allocation of tips and gratuities. These obligations require employers to:
- Allocate qualifying tips fairly – ensuring that workers receive 100 per cent of tips paid.
- Ensure timely payments – qualifying tips must be paid to workers within one month of the end of the month in which they were received. Failure to do so could result in staff claiming compensation of up to £5,000.
- Implement a written policy – a written policy on the allocation of qualifying tips must be publicly displayed and accessible to all workers.
- Maintain records – employers are required to keep records of all qualifying tips distributed and provide this information to workers upon request.
- Respect employee rights – workers can request information about an employer’s tipping records every three months. Any discrepancies may lead to tribunal claims.
If you would like more information about the updates to the Allocation of Tips Act, we can assist you.
How Moore Kingston Smith can help your tronc scheme
Utilising industry-led good practice principles, our experienced hospitality team will support you in balancing the needs of your business with the expectations of both customers and employees.
We can help you:
- Achieve a best practice approach to fair and transparent distribution of discretionary payments in the eyes of staff and customers.
- Reward all employees who contribute to the customer experience, motivating them to work together effectively for the benefit of your diners.
- Create competitive reward packages to attract and retain employees.
Get in touch with us for tailored support and advice on your tipping practices or our tronc solutions.
